In any political season, one of the central points of discussion is the candidate that claims that they can protect and produce more jobs. The arguments that are used to support positions on the right and left are below.
This site seeks to explore the various ways politicians discuss job creation and the potential impact of Republican and Democratic policies. We hope to take an academic or neutral approach to understanding the politicians of our age including but not limited to Hillary Clinton, Donald Trump, and Bernie Sanders.
The Role of Government
The government is present in all economies. Arguments for or against government intervention usually are based on the idea that government inefficiencies reduce the number of available jobs. This argument assigns blame to one of the following job- related factors.
- Unions are often at the center of conversations around jobs because of rules that act as barriers to hiring. Union negotiations result in artificially high salaries that make it too expensive to hire employees at the margin. A typical union chant is “good jobs at good wages,” a theme that attracts votes.
- Subsidies given to politically motivated targets instead of those that will produce more jobs.
- Protectionism of U.S. markets that reduces jobs vs. the number that would be in an open market.
- Democratic socialism such as the type being espoused by Bernie Sanders. In a model similar to what was implemented by President Franklin Delano Roosevelt, millions of Americans were given jobs by the government to put the downtrodden back to work. Others would argue that every job in the public sector is a net reduction of one job that could have been hired by a private sector company.
Many people object to the use of private sector taxes to fund government jobs. Adherents of this school of thought focus on smaller government and the positive impact on the private sector.
Politicians such as Jeb Bush recommend:
- Fewer regulations
- Lower corporate and personal tax rates such as those imposed on probate
- Tax repatriation of overseas profits
- Reduced spending
The reliance on the private sector is based on the argument that private firms have to operate efficiently to survive. These gains in productivity lead to private sector gains that contribute to the greater good. Prosperity in general leads to “trickle down economics” putting more money in everyone’s pockets.
Both parties do asset that policies will result in a healthier America and an expanding economy. Democrats state that government employment is a plus to the economy while Republicans do not believe that this is the case.
Some of the controversies over the role of government in job creation are the recent spate of financial bailouts. In a bailout, the government uses taxpayer resources to keep a private company or financial institution from going out of business. Bailouts are used for problems such as “too big to fail” institutions.
The Democratic view is that bailouts contribute to market stability and save jobs. The automotive bailouts alone saved an estimated 1.5 million U.S. jobs (Source: Center for Automotive Research). Critics contend that the bailout allowed inefficient companies to survive instead of allowing stronger companies to gain share and improve overall economic prosperity.
Government spending is also directed at target industries under the guise of boosting U.S. competitiveness. Recent expenditures by the Obama administration in the solar industry are being allocated with this goal in mind.
Critics also believe that government spending is politically motivated, enabling additional market inefficiencies.
Unemployment Insurance is also a favorite topic of the right and left. The right believes that this is a government subsidy program that should have limited application over short periods of time if at all. The left believes that it is part of the social safety net.
Protecting individual industries is also a politically charged issue that becomes divided along party lines. For the right, protectionist policies lead to inefficiencies and a reduction in prosperity. For the left, protectionism is the best way to protect American jobs in industries where there is perceived predatory pricing by foreign governments. A common example is low prices on steel that comes out of China. The ascribed goal of the Chinese government is to lower prices to the point where American industry can no longer profitably function.
A similar dynamic is going on today with Saudi Arabia and the lowering of oil prices. Lower oil prices negatively affect those States that pump oil using traditional or new technologies such as fracking and shale extraction.
Role of Small Business
Many politicians claim that the engine of job growth is small business. The claim is based on census data that shows a relationship between small firm size and job creation. We agree with this data and support the important place that small business, startups, and entrepreneurs have in creating jobs.
Small companies can also be nimble enough to fill market needs. An example is a company like Freedom Mortgage that is creating jobs and launching careers by filling gaps in the mortgage origination and servicing market.
Imports and Jobs
Many politicians believe that imports are a cause for job losses. News stories frequently point out manufacturing job losses. Recent research shows that “rising imports play a much larger role in the loss of jobs than official data suggests.1” The Progressive Policy Institute estimates that 1.3 million jobs that were lost between 2007 and 2011 or 1/3 of private non-construction job loss are due to the impact of imports on the U.S. economy.
The data points to the need for politicians from both parties to focus on imports, and the impact policy has on manufacturing jobs.
Attack on the Middle Class
Politicians talk about the declining middle class. Bernie Sanders discusses middle-class wage stagnation and wealth being disproportionately held by the “1%.” Left-leaning politicians refer to:
- Unfair labor laws
- Media bias
- Lack of support for small business (regulations, lending)
- Laws that are biased against unions
- Unions keeping taxes high
The reality is that much of this noise is part of advertising campaigns underwritten by right-wing Super-Pacs. The Supreme Court Ruling allowing private industry to fund political campaigns have resulted in a barrage of messages attacking left leaning causes.
The core of any job program is policies that address any employment decline. The types of programs proposed include:
- Infrastructure projects that improve the efficiency and effectiveness of the way we move and live such as transportation. Airport expansion projects are an example of a publicly funded enterprise that encourages private industry growth.The downside of such spending are programs such as President Obama’s stimulus plans from 2009. This method is thought to put money into workers pockets without building projects that created exponential economic value. That said, politicians from the left and right agree that investing in the right projects expands the economy.Another example of efficient spending is hydroelectric plants. The plant creates jobs and pays back any expenditure through the production of electricity. A commercially successful airport and road improvements can have a similar impact.
- Targeted use of tax incentives to attract new industry that will add more value than the size of the stimulus.
- Creation of business zones or hubs, usually around colleges and universities or in depressed areas.
- Examination of regulations and the impact on employment. The cost burden of jobs should be part of each regulation.
- A balanced budget to limit taxation for the purpose of making interest payments, detracting from other programs mentioned on this page.
- Urban development projects can also have a positive impact when areas that are in decline are turned around. This can be accomplished through a mix of infrastructure improvement
Paying Employers to Produce Jobs
Some States have implemented programs where companies are paid to add to their payroll. Depending on the agenda, States will direct funds to particular industry sectors or companies. Startup New York and Connecticut’s Manufacturing Assistance Act are both examples of these types of programs. Politicians from both sides of the aisle support these programs since they are pro business and pro jobs.
The problem with these programs is that they alter the functioning of a free market.
Economic Hubs have a positive impact on job creation, particularly in high-cost States. Savings companies can realize on research and development or training programs can offset above average expenditures in high wage states or on expensive sources of energy.
There are many examples of this policy working.
- Raleigh Research Triangle
- Silicon Valley
- Hubs in Detroit
- The Port of Newark
The Relationship Between Unemployment and Voter Turnout
The degree to which jobs are discussed in politics often has to do with the actual and perceived levels of unemployment. The thought is those general feelings of well-being push jobs policy to the back burner. In an experiment conducted by Matthew B. Incantalupo from Princeton University, he found that “the casual effect of involuntary job loss on reported turnout ranges from about -5% in low-unemployment contexts to over 10% in high unemployment contexts.” These effects are not seen in individuals who lose jobs or quit around election day itself.
The ROI of Jobs
No matter how government and politicians seek to address a jobs program, there needs to be a careful weighing of the cost/benefit. There needs to be an expectation that the investment in a job will yield a greater return than the financial outlay. In government, a ten-year payback is considered to be a reasonable time frame.
Politicians also need to consider the amount of time a subsidy is required to be in place. If the subsidy is the only thing keeping a job in place, than the investment does not make sense. If the grant creates the condition to create a job that will sustain itself after the subsidy period expires, then it makes sense to invest in the jobs program.
It is also questionable policy when a job is the direct result of a subsidy. It begs the question as to whether or not the job would have been necessary at all. Tax credits and other inducements need to be implemented that do not lead to jobs that are not economically significant. There is also the danger of postponing the inevitable in industries that are on downside of a growth curve such as is the potential case with fossil fuels.
Politicians have an obligation to act when it comes to jobs. We understand the reality of needing to balance what is politically popular with a policy that may be unpopular, but highly effective.
The preceding review suggests some starting places for the intersection of sound policy and workforce expansion. The government can have a role when it acts with the ROI of each job in mind.
(1) Mandel, Michael and Carew, Diana G; Progressive Policy Institute (PPI), March 2012